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The Impact of Audit Quality, Audit Committee and Financial Reporting Quality: Evidence from Malaysia

Author

Listed:
  • Shahanif Hasan

    (Faculty of Business and Accountancy, Universiti Selangor, 40000 Shah Alam, Malaysia,)

  • Aza Azlina Md. Kassim

    (Faculty of Business and Accountancy, Universiti Selangor, 40000 Shah Alam, Malaysia,)

  • Mohamad Ali Abdul Hamid

    (Putra Business School, 43400 Seri Kembangan, Selangor)

Abstract

In recent decades, there has been a noticeable increase in the practice of earnings management (EM) as a proxy for financial reporting, especially real activities, with effect on the quality of financial statements. The role of the audit committee in mitigating EM remains ambiguous because of inconclusive findings. Therefore, this study examines the moderating effect of audit quality and audit committee on financial reporting quality, also known as real earnings management in Malaysian companies. The results show that corporate governance mechanism such as financial accounting expert, meeting and indicate significant results with real EM while, audit committee independence and size, shows an insignificant result on real EM. In addition, the results show that audit quality of the audit committee leads to less aggressive EM practice in real activities. The findings also show that audit quality and audit committee has a significant role in restricting the real EM. Audit quality is found to significantly moderate the relationship between audit committee with financial reporting quality proxy. Overall, this study provides a reference point for the relevant parties such as regulatory bodies, policymakers and standard setters towards improving the quality of earnings and corporate governance practices in ensuring credible accounting information.

Suggested Citation

  • Shahanif Hasan & Aza Azlina Md. Kassim & Mohamad Ali Abdul Hamid, 2020. "The Impact of Audit Quality, Audit Committee and Financial Reporting Quality: Evidence from Malaysia," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 272-281.
    • Handle: RePEc:eco:journ1:2020-05-31
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    References listed on IDEAS

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    Cited by:

    1. Andreea Georgiana PASCARU & Camelia-Daniela HATEGAN, 2024. "Audit Quality and Audit Market at European Level," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 22(176), pages 758-768, October.
    2. Hung Chi Chen & Hsiang-Tsai Chiang & Dessy Voren, 2023. "The Impact of the COVID-19 Pandemic on Quality of Financial Reports," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(4), pages 1-1.

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    More about this item

    Keywords

    Audit Committee Effectiveness; Audit Quality; Real Earnings Management; Malaysia;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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